Today's Economist

Luck and a Little Mystery: The Economy Grows Faster Under Democratic Presidents

Though I typically resist, my wife often tries to get me to put down the laptop and enjoy the Zen of gardening with her. So you can imagine her surprise when she returned from a trip to find a beautiful clump of nonwild flowers planted in her garden. She loved the welcome-home gift and was ready to bestow upon me many valuable (and increasingly elusive) good-husband points.

The thing is, I have no idea how those flowers got there. And like George Washington, I could not tell a lie. But had I in fact been an actual president, I probably would have taken credit.

This incident came to mind upon reading the provocative new paper by the economists Alan Blinder and Mark Watson that rigorously examines how the economy has performed under presidents since the 1940s. Their main questions are: Which party’s presidents preside over better economies and why?

Their answer to the first question is clear: The American economy has grown faster — and scored higher on many other macroeconomic metrics — when the president of the United States is a Democrat rather than a Republican.

The two looked at key macroeconomic variables averaged over 64 years (16 four-year terms), from Harry Truman to Barack Obama. Mr. Blinder and Mr. Watson focus mostly on the 1.8 percent annual difference in real G.D.P. growth. That is, over the full study, real G.D.P. growth averaged 3.33 percent per year. But under Democratic presidents the economy grew 4.35 percent and under Republicans 2.54 percent.

Under Democratic presidents, the economy also spent fewer quarters in recession; added more jobs and more hours worked; and posted larger declines in unemployment and higher corporate profits than under their Republican counterparts. Stock market returns were a lot higher under Democrats as well, but because equity markets are so volatile, that difference is not statistically significant. (By the way, since March 2009, the S.&P. stock index is up 160 percent).

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President Clinton giving his State of the Union address in 1999.Credit
J.Scott Applewhite/Associated Press

I added my own variable, though since it’s only annual, I couldn’t match the dates to terms as well as Mr. Blinder and Mr. Watson: Since 1947, real median family income grew by 1.6 percent over Democratic presidents and 1.1 percent over Republicans’ terms. (The difference is not significant, however).

It’s a remarkable set of findings and one that clearly raises the question with which Mr. Blinder and Mr. Watson spend most of their paper wrestling: What explains these differences?

They start out, sensibly, by showing some plausible explanations that fail to explain the difference. Democrat presidents don’t inherit better economies — to the contrary, they inherit worse ones, at least by the measure of G.D.P. growth. Control of Congress or the Federal Reserve fails to explain the gap. Same for budget and tax policy. That is, it’s not that Democrats juice the economy with deficit spending; the cyclically adjusted budget deficit is actually smaller under the Democrats.

Military spending grew a lot faster under Democratic administrations than Republican ones (think President Truman in Korea and Lyndon Johnson in Vietnam), but Mr. Blinder and Mr. Watson find that such spending represents too small a share of G.D.P. to explain much. (True, Ronald Reagan engaged in military Keynesianism, but Eisenhower quite sharply cut the “military industrial complex.”)

Instead, the two economists find they can explain half of that 1.8 percent G.D.P. difference through differences in productivity growth, favorable oil shocks, more favorable international conditions and (slightly) more optimistic consumer confidence.

By now, you may be asking what any of this has to do with flowers in my wife’s garden. It’s this: Much as I could not take credit for flowers I hadn’t planted, Democratic presidents can’t legitimately take credit for those factors. Productivity, oil shocks and better global conditions are best filed under “luck.”

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Ronald Reagan led a military buildup, but over all, military spending has grown faster under Democratic presidents than Republican ones since the 1940s.Credit
Mike Sargent/Agence France-Presse — Getty Images

That’s arguable, of course. One can weave stories about how presidents affect these variables, especially consumer confidence (though I’ve always found consumers’ moods correlate with gasoline prices, so that’s probably connected to oil). I can easily do so myself: George W. Bush contributed to considerable conflict affecting oil supply chains; Mr. Obama has both drawn down that conflict and at least presided over extensive development of domestic energy production.

And to state the entirely obvious: Presidents themselves will always claim credit for anything good that happens on their watch.

But as difficult as this may be in such partisan times, I wouldn’t push any of this too far. In fact, in a career of data analysis — in which I’ve made thousands of tables and graphs plotting changes over time — I cannot recall one that compared presidential terms. That’s because they are swamped by the business cycle — the booms and busts that are far more obvious and dramatic movers of the economy.

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Sure, key themes of my work are that expansive fiscal policy is hugely important in responding to downturns, and investment in public goods has positive, long-term impacts on productivity and growth. But identifying such differences among presidents is impossible. Historically both Democratic and Republicans do a lot of both. Their actions interact with the economy in ways that can’t be untangled. The interstate highway investments of Eisenhower (R) surely contributed to the productivity acceleration enjoyed by Kennedy (D).

So, what should one make of this work?

First, the fact that half of the gap remains unexplained means that this is still largely an open question. There’s lots of variance left to fight over.

Second, while over the broad sweep of history a convincing answer to this question may be unknowable, that’s less the case with the near term. The fact that bad fiscal policy — sharp deficit reduction when the economy was still weak — has hurt the current recovery is knowable and important. Though here, too, there’s ambiguity: The recent austerity is mostly the work of Republicans, but the president has also at times bought into it.

Finally it is glaringly obvious that complex, advanced economies need well-functioning federal governments that can accurately diagnose and prescribe; they need governments that can absorb factual information and respond to threats and opportunities. These requirements hold regardless of the president’s party, and the fact that we do not currently have such a federal government is without doubt what’s most important and most scary.

Jared Bernstein is a senior fellow at the Center on Budget and Policy Priorities in Washington and a former chief economist to Vice President Joseph R. Biden Jr. Follow him on Twitter at @econjared.